Around 50 Oliver Brown franchise stores face uncertain futures after the company collapsed into voluntary administration, reportedly owing $29 million in liabilities.

The Belgian-inspired chocolate store lists 52 franchised stores on its website; all are on the east coast and 43 are in New South Wales. This list includes the Weatherill Park store, which, according to ASIC documents, was placed in liquidation on March 14. It also includes the Sydney’s World Square store, which fell into administration at the beginning of May.

On May 8, Timothy Heesh of TPH Insolvency was appointed to the brand’s operating business Doutmost Pty Ltd. On June 13, creditors will meet for a second time to vote on a possible Deed of Company Arrangement.

Stores have continued to trade and the business has remained active in promotions of its offers on social media. A large number of the sites are located within large shopping centres operated by the likes of Stockland and Westfield.

Inside Retail reports the company owes creditors $29 million and company director Eric Song had contested a $5.1 million tax debt identified in 2016. Seeking to recover this debt, the Australian Taxation Office reportedly issued garnishee notices to franchisees instead of head office. The ATO is said to be claiming $5.2 million in liabilities at this stage, while landlords are reportedly owed upwards of $20 million.

Inside Retail further reports that Heesh is expected to recommend a vote in favour of a Deed of Company Arrangement proposal, which would allow the stores to continue trading.

Pressures being felt in the food court space

The situation is yet another recent example of a franchised food business falling on hard times. Franchisees at brands like Red Lea chickens and John’s Nuts have also been left in challenging conditions this year. In order to continue doing business after their head office collapses, franchise operators must deal with landlords and source new suppliers.

The pressures being felt by retail and food businesses in the shopping centre space have been bubbling away for some time. However, it’s only in the past six or 12 months that the impacts have really been noticed, says commercial leasing expert and founder of Eve Property, Amanda Falahey.

“There has definitely been more focus placed on retail spaces within large spaces because of this, and from that, landlords are starting to give more of an impression that they are willing to listen to their customers [tenants],” she says.

Retail rent levels, combined with the changing nature of foot traffic in shopping centres and heavy investment in food brands, has made it difficult for some food operators to make the situation work, Falahey says.

However, she also observes the process of negotiating franchise rental agreements is incredibly complex in Australia, presenting a number of potential challenges for franchisees if a head office calls in external managers.

“There is no set rule in franchising around how properties are sought and whose name the lease goes into,” she says.

While it’s not clear how rental agreements were negotiated in the case of Oliver Brown, Falahey says in general terms, franchisees can be left to their own devices when discussing tough rental contracts with landlords.

“When we deal with an individual franchisee, it’s usually because they’ve had no direction from the franchisor, they’ve just been told, ‘your site must meet these requirements’. Negotiating can be hard,” Falahey says.

SmartCompany contacted both the administrator and Oliver Brown’s head office but did not receive a response prior to publication.

SmartCompany is the leading online publication in Australia for free news, information and resources catering to Australia's entrepreneurs, small and medium business owners and business managers.

Monday to Friday, SmartCompany.com.au publishes news, business trends and ideas from around the world, profiles and features, as well as all the latest business, tax, legal, marketing, politics and innovation developments occurring around the country.